Hong Kong, March 04, 2019 -- Moody's Investors Service has downgraded China Jinjiang Environment
Holding Co. Ltd.'s (CJE) corporate family rating (CFR)
to Ba3 from Ba2 and the senior unsecured rating on its USD bond to B1
from Ba3. This concludes the review for downgrade that was initiated
on December 3, 2018.
The ratings outlook is negative.
RATINGS RATIONALE
"The ratings downgrade reflects CJE's weakened credit profile due
to 1) challenges related to the outage of certain existing capacity,
2) its strained liquidity, 3) its increased overseas expansion which
raise the level of financial leverage in the near term, and 4) uncertainty
surrounding the credit profile of its ultimate parent company, namely
Hangzhou Jinjiang Group" says Qingqing Guo, a Moody's
Assistant Vice President and Analyst.
"Because of these challenges, the credit profile of CJE is
no longer consistent with the previous ratings", Guo adds.
The outage of facilities, which occurred around the time when CJE
was ramping up its overseas expansion, has raised the level of credit
risk for the company. Moody's notes that CJE has been making
progress in completing its upgrade program, and this has reduced
further downside risk.
Moody's expects CJE's credit metrics for FY2019 to be weaker
than our original expectation, with the ratio of Retained Cash Flow
(RCF)/Adjusted Debt projected to be at or around 9%- 12%,
depending on the dividend payout.
At the same time, CJE has a challenging liquidity position and refinancing
task. Over the next 12 months, Moody's expects that
available liquidity sources, including cash-on-hand,
operating cash flow, and available committed facilities will not
be sufficient to meet the high amount of maturing debt as well as capex
requirement related to its various projects.
Moody's also notes the presence of restrictive covenants in CJE's
certain loan agreement, and the associated risk that further ratings
downgrade will trigger accelerated debt repayment obligations.
"Furthermore, Moody's sees continued uncertainty related
to the credit profile of the ultimate parent company, Hangzhou Jinjiang
Group, reflecting the volatile aluminum and raw material prices,
tightened environmental regulations, and the stricter lending policies
applicable to the oversupplied industry", Guo adds.
Moody's notes the limited financial related party transactions,
and CJE's Board composition, which reduce the extent to which
the parent's credit profile could impact CJE's ratings.
CJE has been developing overseas projects in countries such as Brazil,
India, Indonesia and recently Singapore. While such overseas
projects provide a degree of cash flow diversity over time, they
require incremental debt to develop, thereby further straining the
company's financial metrics.
The negative outlook reflects continued challenges relating to CJE's
tight liquidity position and refinancing risk. The potential for
further overseas expansion, which may elevate financial leverage
further, also weighs on CJE's overall credit profile.
The senior unsecured rating on the USD bond is one notch lower than the
CFR, reflecting the company's substantial debts, mainly
on secured basis, at its operating subsidiaries level, which
complicates the expected recovery of the bond in the event of default.
Upward rating trend is unlikely, given the negative outlook on the
ratings.
The rating outlook could be changed to stable if (1) CJE terms out its
maturing debt in a timely manner and (2) the overseas expansion does not
materially elevate business risk and financial leverage, and 3)
CJE maintains financial metrics that are consistent with current ratings,
including RCF/Debt at around 9-12%, depending on the
dividend payout.
The rating could be downgraded if 1) there is limited progress on refinancing
and liquidity remains tight and 2) CJE's credit metrics and business
risk worsen materially due to additional debt-funded overseas projects.
Financial metrics for a rating downgrade include RCF/Debt dropping below
8% and FFO interest cover declining below 2.25x on a consistent
basis.
Continued uncertainty or a material weakness over the credit profile of
the parent company could also pressure CJE's ratings.
Heavy connected-party transactions or unfavorable regulatory changes
that materially jeopardize the operational and financial health of the
company could also result in negative rating pressure.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
China Jinjiang Environment Holding Co. Ltd. (CJE) is a Singapore-listed
waste-to-energy (WTE) operator in China. The company's
ultimate parent, Hangzhou Jinjiang Group (HZJJ), owned 39.2%
of CJE as of December 2018.
CJE operates along the whole value chain in the WTE sector, from
planning and construction to the operation and management of WTE facilities.
At the end of 2018, CJE had 20 operating WTE facilities and 4 resource
recycling projects with a total waste treatment capacity of 29,240
tons/day and electricity generation capacity of 574MW covering 12 provinces
in China.
The local market analyst for these ratings is Qingqing Guo, +86
(21) 2057-4093.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
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